I am involved in Web Replay (the best password manager on the market) development from its inception. Recently, we have upgraded SQL CE engine to the latest 3.5 SP1 version. Web Replay is built against Visual C++ runtime version 9 which is deployed by including Microsoft Visual C++ 2008 Redistributable Package (x86) in the setup. But that was not enough because Microsoft SQL CE 3.5 SP1 depends on Visual C++ runtime version 8.0 which is NOT included in the redistributable kit!
If you encounter this problem you have no option but to include vc2005 redist in your setup. You could think that giving up the upgrade to 3.5 version and continuing using SQL CE 3.1 is an option. Well, it isn't! SQL CE 3.1 is crashing randomly on Windows XP SP3 (even Microsoft SQL Server Management Studio is reporting some memory corruption error before completely freezing).